AT&T Worldnet 2006 Annual Report Download

Download and view the complete annual report

Please find the complete 2006 AT&T Worldnet annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 88

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88

2006 Annual Report : : AT&T Inc.
Delivering on our promise

Table of contents

  • Page 1
    2006 Annual Report :: AT&T Inc. Delivering on our promise

  • Page 2
    ... No. 1 provider of broadband services in the United States, delivering advanced IP-based services including IPTV, Wi-Fi, WiMAX and satellite-based broadband. AT&T is the highest-ranked telecommunications operator for business customers of IP services and a recognized leader in the consumer Internet...

  • Page 3
    ... at this point after a series of moves that transformed our company and changed the industry. And, as owners in the business, you might ask what the new AT&T is all about. That is a fair question, which I am pleased to answer. The new AT&T is ... To Our Stockholders : : 2006 AT&T Annual Report : : 1

  • Page 4
    ... most of the opportunity. For example, we now offer high speed Internet access on wireless handsets in more than 165 U.S. cities, allowing customers to download videos, e-mail, games and music faster than ever. We also migrated virtually all of our wireless traffic to our advanced GSM network. Using...

  • Page 5
    ... only - call to us. We have introduced faster installations, which can now be done in the evenings and on weekends, and DSL plans without early termination fees. For our business customers, we have reduced the time it takes to provide some services by as much as 75 percent and introduced innovations...

  • Page 6
    ... customers and supports our three-screen strategy for consumers - to integrate the wireless phone, TV and PC under a single, unified service. RIGHT: The iPhone from Apple and AT&T will transform the way people think about wireless communications. n n 4 : : 2006 AT&T Annual Report : : Wireless

  • Page 7
    ... video services. Our stores also offer a wide range of wireless products for business customers. Wireless revenue growth is driven by increased penetration of the mass market and by more demand for wireless access to e-mail and the Internet, along with the ever-increasing popularity of downloadable...

  • Page 8
    ... a calling community of more than 100 million AT&T wireless and wireline phone numbers, including homes and businesses. AT&T continues to demonstrate leadership in wireless entertainment. We have expanded our offerings to include the most comprehensive mobile music subscription service offered by...

  • Page 9
    ... providing up to 99.999 percent reliability. Robust IP Data Services. IP data services revenue grew more than 12 percent in 2006, driven by gains in hosting services and virtual private networking. Growth From In-Region Businesses. 2006 revenue growth from businesses located in our local service...

  • Page 10
    ... example, in India, AT&T became the first foreign telecom operator to be granted a license to provide telecommunications services. In response to rising customer demand for hosting and managed services, we expanded our network of highly secure Internet Data Centers to 32, half of which are located...

  • Page 11
    ... Internet Data Centers (IDCs) deliver the most comprehensive set of hosting services that drive global commerce - from collocation of customers' servers to fully managed solutions for maintaining the Web sites of some of the world's best-known brands. IDCs also offer our hosting customers multiple...

  • Page 12
    IP and Broadband n Broadband Access Across Our Customer Base. We now offer high speed Internet access to more than 80 percent of our local service customers through our network. We reach even more customers through our alliance with satellite broadband provider WildBlue. Increased Broadband ...

  • Page 13
    ... wireless capabilities and AT&T CallVantage Voice over IP service. ABOVE: The YELLOWPAGES.COM network received more than 1 billion searches for local information in 2006. AT&T's Video Entry Will Help Drive Revenue Growth Because we are a new entrant, we believe the video market offers significant...

  • Page 14
    ... that we plan to offer AT&T Yahoo! High Speed Internet service at 570 Wal-Mart stores. Customers can now also buy our broadband products from Amazon.com, which has more than 64 million active customer accounts. In October, we relaunched AT&T blue roomSM (attblueroom.com), a Web site that houses...

  • Page 15
    ... redesigned Web site makes buying wireless service easier than ever. Customers can also establish a personal online account that enables them to review and pay bills, check voice minutes or data usage, access tutorials and upgrade their phones. n n ABOVE LEFT: An AT&T technician offers an at-home...

  • Page 16
    ... for Broadband Customers During 2006, we simplified pricing and service options for AT&T Yahoo! High Speed Internet service and for our local and long distance voice packages. We also introduced DSL plans without contract requirements or early termination fees. And we now install service during...

  • Page 17
    ... to bridging the digital divide. (LEFT) Through the AccessAll program, AT&T funds computer education for recent immigrants. (RIGHT) The AT&T Foundation also provides funding to OASIS, which provides computer skills classes to older adults. n n n Community : : 2006 AT&T Annual Report : : 15

  • Page 18
    ... to our commitment to hiring veterans, since 2000 AT&T has given U.S. troops more than $6 million in prepaid calling cards and installed approximately 70 air-conditioned call centers for members of the military stationed in Iraq, Kuwait and Afghanistan. 16 : : 2006 AT&T Annual Report : : Community

  • Page 19
    ... Financial Statements Report of Management Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Board of Directors Senior Officers 18 19 47 51 80 81 82 83 84 2006 AT&T Annual Report : : 17

  • Page 20
    ...000) Weighted-average common shares outstanding with dilution (000,000) End of period common shares outstanding (000,000) Operating Data Network access lines in service (000)7 DSL lines in service (000)7 Wireless customers (000)8 Number of employees 1 2 1 $ 63,055 $ 52,767 $ 10,288 $ 1,843 $ 2,043...

  • Page 21
    ... of retail access lines due to increased competition, as customers continue to disconnect both primary and additional lines and began using wireless and Voice over Internet Protocol (VoIP) technology offered by competitors and cable instead of phone lines for voice and data. Operating revenues...

  • Page 22
    ...This segment provides both retail and wholesale landline telecommunications services, including local and long-distance voice, switched access, Internet Protocol (IP) and Internet access data, messaging services, managed networking to business customers, our U-verseSM 20 : : 2006 AT&T Annual Report

  • Page 23
    ...competition, as customers disconnected lines and switched to competitors' alternative technologies, such as wireless and VoIP, for voice and data. The improvement in our wireline segment operating income in 2005 was due primarily to the continued growth in our data and long-distance revenues, which...

  • Page 24
    ... customers shifting to competitors' wireless and VoIP technology for voice, and the disconnection of additional lines for DSL service and other reasons. Partially offsetting these demand-related declines in 2006 were revenue increases related to pricing increases for regional telephone service...

  • Page 25
    ...to provide transitional and out-of-market long-distance services under a new agreement, which commenced in November 2005 as a result of our acquisition of ATTC. • A change made during 2006 in our policy regarding the timing for earning vacation days decreased expenses $96. 2006 AT&T Annual Report...

  • Page 26
    ... access lines served by AT&T's ILECs (excludes subsidiaries of BellSouth). 2 Competitive local exchange carriers (CLECs). 3 Broadband connections include DSL lines of 8,529 in 2006 and 6,921 in 2005, U-verse high-speed Internet access and satellite broadband. 24 : : 2006 AT&T Annual Report

  • Page 27
    ...our 60% equity ownership of AT&T Mobility, and after taking into account cash on hand at AWE, we provided approximately $21,600 to fund the purchase price. Wireless Customer and Operating Trends As of December 31, 2006, we served 61.0 million wireless customers, compared to 54.1 million at December...

  • Page 28
    ... in local service, net roaming and other revenue per customer mostly offset by a 44.8% increase in average data revenue per customer and increased long-distance revenue per customer. The continued increase in data revenue was related to increased use of text messaging, Internet access, e-mail and...

  • Page 29
    ... 50% for 2006. In 2005, higher roaming and long-distance costs and increased USF and regulatory fees related to the increase in the customer base. • Increased payments in 2005 to T-Mobile for the use of its network in California and Nevada, as well as expenses related to operating, maintaining and...

  • Page 30
    ...consist primarily of Sterling, corporate, other operations and, with the closing of the BellSouth merger on December 29, 2006, BellSouth's operating results for the two days after the merger close. Sterling provides business-integration software and services. Operating revenues increased $209, or 28...

  • Page 31
    ... Equity in Net Income of Affiliates 1 $1,508 274 222 - - 56 $2,060 $200 198 212 - - 4 $614 $ 30 132 180 328 115 88 $873 Investment sold in 2004. Operating revenues increased in 2006 attributable to growth in DSL, long distance, wholesale wireless transport and emerging data services as well...

  • Page 32
    ... are increasingly looking to the wireless industry to fund various initiatives, including universal service programs, local telephone number portability, services for the hearing-impaired and emergency 911 networks. While wireless communications providers' prices and service offerings are generally...

  • Page 33
    ...terms of subscribers. Following our December 2006 acquisition of BellSouth, AT&T Mobility became a whollyowned subsidiary. At December 31, 2006, we served approximately 61 million customers and had access to licenses to provide wireless communications services covering an aggregate population of 296...

  • Page 34
    ... technology to provide superior speeds for data and video services, as well as operating efficiencies using the same spectrum and infrastructure for voice and data on an IP-based platform, which will allow us to offer a host of new broadband data applications. REGULATORY DEVELOPMENTS Set forth below...

  • Page 35
    ...Inc., for local and high-speed Internet services customers and other telecommunications companies such as Verizon Communications Inc. (Verizon) for both long-distance and local services customers. Substitution of wireless and Internet-based services for traditional local service lines also continues...

  • Page 36
    ...in lower cost structures. In response to these competitive pressures, for several years we have utilized a bundling strategy that rewards customers who consolidate their services (e.g., local and long-distance telephone, DSL, wireless and video) with us. We continue to focus on bundling wireline and...

  • Page 37
    ... amortizable tradenames, is determined using the straightline method of amortization over the expected remaining useful lives. We do not amortize indefinite-lived intangibles, such as wireless FCC licenses or certain trade names. 2006 AT&T Annual Report : : 35

  • Page 38
    ... In particular, we agreed not to offer to provide service, for a period of two years or until federal net neutrality legislation is enacted if sooner, that charges a premium for transporting data from websites. We also agreed to offer broadband Internet access service to all residential living units...

  • Page 39
    ...or customers at any time after September 2001." They allege that the defendants have disclosed and are currently disclosing to the U.S. Government records concerning communications to which Plaintiffs and class members were a party, including providing access to stored telephone and Internet records...

  • Page 40
    ... Mobility and BellSouth. • $285 related to the acquisition of USinternetworking, Inc., which provides managed enterprise software and on-demand services, net of cash received. • $130 related to the acquisition of Comergent, Inc., which provides Internet-based services related to services offered...

  • Page 41
    ... with interest rates ranging from 6.35% to 9.5%. • $56 related to scheduled principal payments on other debt and repayments of other borrowings. In May 2006, we received net proceeds of $1,491 from the issuance of $1,500 of long-term debt consisting of $900 of two-year floating rate notes and $600...

  • Page 42
    ..., 2008. We do not have plans to materially change the corporate structures of BellSouth and AT&T Mobility. • To unconditionally and irrevocably guarantee all obligations under, including the payment of interest and principal on, the $1,000 principal amount of annual put reset securities issued by...

  • Page 43
    ... the timing of such payments, if any, is uncertain. 4 Other long-term obligations includes commitments with local exchange carriers for dedicated ...changes in the strategies used to manage interest rate risk, foreign currency rate risk or equity price risk in the near future. 2006 AT&T Annual Report...

  • Page 44
    ... expense that would result from a probable change in interest rates. When the potential increase in interest expense exceeds an acceptable amount, we reduce risk through the issuance of fixed rate (in lieu of variable rate) instruments and the purchase of derivatives. 42 : : 2006 AT&T Annual Report

  • Page 45
    ... as exhibits to our Annual Report on Form 10-K for 2006. RISK FACTORS In addition to the other information set forth in this document, including the matters contained under the caption "Cautionary Language Concerning Forward-Looking Statements," you should carefully read the matters described...

  • Page 46
    ... that affect our wireline and wireless networks, including telephone switching offices, microwave links, thirdparty owned local and long distance networks on which we rely, our cell sites or other equipment, could have a material adverse effect on our operations. While we have insurance coverage...

  • Page 47
    ...streamline the ownership and operations of AT&T Mobility and to combine the AT&T Mobility, BellSouth and AT&T IP networks into a single IP network; to speed the deployment, and at lower cost, of next-generation IP video and other services; to provide business customers with the benefits of combining...

  • Page 48
    ...access line totals and wireline and wireless operating margins. • Our ability to develop attractive and profitable product/ service offerings to offset increasing competition in our wireline and wireless markets. • The ability of our competitors to offer product/service offerings at lower prices...

  • Page 49
    ...2006 2005 2004 Operating Revenues Voice Data Wireless service Directory Other Total operating revenues Operating...Operations Income From Discontinued Operations, net of tax Net Income Earnings Per Common Share: Income From Continuing Operations Net...$ 1.50 1.78 1.50 1.77 2006 AT&T Annual Report : : 47

  • Page 50
    Consolidated Balance Sheets Dollars in millions except per share amounts December 31, 2006 2005 Assets Current Assets Cash and cash equivalents Accounts receivable - net of allowances for uncollectibles of $1,276 and $1,176 Prepaid expenses Deferred income taxes Other current assets Total current ...

  • Page 51
    ... from continuing operations Net Cash Used in Operating Activities from Discontinued Operations Net Cash Provided by Investing Activities from Discontinued Operations Net increase (decrease) in cash and cash equivalents Cash and cash equivalents beginning of year Cash and Cash Equivalents End of Year...

  • Page 52
    ...of year Issuance of shares Stock based compensation Balance at end of year Retained Earnings Balance at beginning of year Net income ($1.89, $1.42 and $1.78 per share)... (360) $ 6,469 The accompanying notes are an integral part of the consolidated financial statements. 50 : : 2006 AT&T Annual Report

  • Page 53
    .... Our subsidiaries and affiliates operate in the communications services industry both domestically and internationally providing wireline and wireless telecommunications services and equipment as well as directory advertising and publishing services. On December 29, 2006, we acquired 100% of...

  • Page 54
    ... local telephone, long-distance and data services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic processed), period of time (e.g., monthly service fees) or other established fee schedules. Service revenues also include billings to our customers...

  • Page 55
    ... right to utilize certain radio frequency spectrum to provide wireless communications services. While FCC licenses are issued for a fixed time, renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, AT&T Mobility has determined that there are currently no legal, regulatory...

  • Page 56
    ... U.S., providing wireline communications services, including local exchange, network access, intraLATA long-distance services and Internet services to substantial portions of the population across nine states. BellSouth also provided long-distance services to enterprise customers throughout...

  • Page 57
    ... cable to points near end-users, will complement our existing plans to deploy IPTV to existing wireline service areas and to increase the number of potential customers for our IPTV product. The application of purchase accounting under FAS 141, requires that the total purchase price be allocated to...

  • Page 58
    ...Long-term debt Deferred income taxes Postemployment benefit obligation Other noncurrent liabilities Total liabilities assumed Net assets acquired $ 4,875 18,498 330 214 9,230 100 211 32,759 2,446 11,211 26,467 106,341 customers, 9.6 years for business customers and 7 years for directory customers...

  • Page 59
    ... offering a variety of global communications services, including large domestic and multinational businesses, small and medium-sized businesses and government agencies, and operated one of the largest telecommunications networks in the U.S. ATTC also provided domestic and international long-distance...

  • Page 60
    ...provider of distributed order management and supply-chain fulfillment services. Dispositions Net proceeds from the 2004 dispositions of our international investments were generally used to fund, in part, our share of the purchase price paid by AT&T Mobility to acquire AT&T Wireless (AWE). Directory...

  • Page 61
    ... wireline, (2) wireless, (3) directory and (4) other. The wireline segment provides both retail and wholesale landline telecommunications services, including local and long-distance voice, switched access, IP and Internet access data, messaging services, managed networking to business customers, our...

  • Page 62
    ... At December 31, 2006 or for the year ended Wireline Wireless Directory Other Consolidation and Elimination Wireless Elimination Consolidated Results Revenues from external customers Intersegment revenues Total segment operating revenues Operations and support expenses Depreciation and amortization...

  • Page 63
    For the year ended December 31, 2004 Wireline Wireless Directory Other Consolidation and Elimination Wireless Elimination Consolidated Results Revenues from external customers Intersegment revenues Total segment operating revenues Operations and support expenses Depreciation and amortization...

  • Page 64
    ...: : 2006 AT&T Annual Report On December 29, 2006, we assumed $28,321 in long-term debt and capital leases related to our acquisition of BellSouth (see Note 2). The debt of AT&T Mobility was included in the amount assumed now that it is a subsidiary of AT&T. BellSouth's and AT&T Mobility's long-term...

  • Page 65
    ...as of December 31, 2006 or 2005. Defaults under the agreement, which would permit the lenders to accelerate required payment, include nonpayment of principal...on quoted market prices, where available, or on the net present value method of expected future cash flows using 2006 AT&T Annual Report : : 63

  • Page 66
    ... 2006, we repaid the notional amount of our foreign currency swap of $636. Upon repayment we unwound our swap asset of $284. Additionally, we repaid the collateral associated with the swap contract of $150, which was received by us over the term of the swap agreement. 64 : : 2006 AT&T Annual Report

  • Page 67
    ... federal income tax rate (35%) to income before income taxes, income from discontinued operations, extraordinary items and cumulative effect of accounting changes is as follows: 2006 2005 2004 At December 31, 2006 and 2005, net deferred tax liabilities include a deferred tax asset of $456 and $542...

  • Page 68
    ... of the December 31, 2006 expected funded status of BellSouth's plans, excluding supplemental retirement plans and excluding the acquisition by AT&T, and status of those plans subsequent to the acquisition. The acquisition of BellSouth's portion of AT&T Mobility will be accounted for as a step...

  • Page 69
    ... their pension benefits in either a lump sum payment or an annuity. At December 31, 2006, certain defined pension plans formerly sponsored by ATTC and AT&T Mobility were merged in to the AT&T Pension Benefit Plan. Postretirement Benefits We provide certain medical, dental and life insurance benefits...

  • Page 70
    ... for phone services provided by another carrier. During 2005, we notified out-ofregion retirees of changes which allowed us to reduce this obligation by $96. Effective January 1, 2006, medical coverage for most management participants was amended to provide a highdeductible plan. Additionally...

  • Page 71
    ... Benefits 2006 2005 2004 Postretirement Benefits 2006 2005 2004 Service cost - benefits earned during the period Interest cost on projected benefit obligation Expected return on plan assets Amortization of prior service cost (benefit) and transition asset Recognized actuarial loss Net pension...

  • Page 72
    ...prescription drugs and certain medical services), we continue to experience better than expected claims experience. The following table provides our assumed average health care cost trend based on the demographics of plan participants. 2007 2006 benefits under GAAP, we do not account for the cap in...

  • Page 73
    ... of $217 (net of deferred taxes of $134), as the accumulated benefit obligation of certain plans exceeded the recorded liability. The following table provides information for our supplemental retirement plans with accumulated benefit obligations in excess of plan assets: 2006 2005 Projected benefit...

  • Page 74
    ... gains or losses, unrecognized prior service costs and unrecognized net transition obligations. The following table provides the plans' benefit obligations and fair value of assets and a statement of the funded status at December 31. The net amounts recorded as "Postemployment benefit obligation" on...

  • Page 75
    ... used the following weighted-average assumptions: risk-free interest rate of 4.84%, dividend yield of 5.20%, expected volatility factor of 19.05% and had an expected option life of up to 4 years. The weighted-average fair value of each option converted was $2.02. 2006 AT&T Annual Report : : 73

  • Page 76
    ...Vested Forfeited Nonvested at December 31, 2006 15 15 6 (10) (1) 25 $24.91 25.45 21.54 25.95 25.18 $24.03 Accounts payable and accrued liabilities: Accounts payable Accrued rents and other Advance billing and customer deposits Accrued payroll Deferred directory revenue Current portion of employee...

  • Page 77
    ... $1,680 in 2011. Licenses includes FCC licenses of $33,979 that provide us with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services. While FCC licenses are issued for a fixed time, renewals of FCC licenses have occurred routinely and at nominal...

  • Page 78
    ..., we generated revenues of $1,466 in 2006, $869 in 2005 and $602 in 2004 for services sold to AT&T Mobility. These revenues were primarily from access and long-distance services sold to AT&T Mobility on a wholesale basis and commissions revenue related to customers added through AT&T sales sources...

  • Page 79
    ...Net Income $ - (182) 182 417 5,035 1,039 5,839 (48) 5,887 - $5,887 $45,650 39,931 5,719 1,255 1,714 183 6,361 2,234 4,127 908 $ 5,035 $(4,917) (4,917) - (649) (5,876) 192 (5,035) - (5,035) - $(5,035) $40,733 34,832 5,901 1,023 873 1,414 7,165 2,186 4,979 908 $ 5,887 2006 AT&T Annual Report...

  • Page 80
    ... Financial Statements (continued) Dollars in millions except per share amounts Condensed Consolidating Balance Sheets December 31, 2006 Parent BellSouth Other Adjs. Total Cash and cash equivalents Accounts receivable - net Other current assets Total current assets Property, plant and equipment...

  • Page 81
    ... FINANCIAL INFORMATION (UNAUDITED) The following table represents our quarterly financial results: Stock Price Calendar Quarter Total Operating Revenues Operating Income Net Income Basic Earnings Per Share1 Diluted Earnings Per Share1 High Low Close 2006 First Second Third Fourth Annual 2005...

  • Page 82
    ... concluded by year-end, are the responsibility of management, as is all other information included in the Annual Report, unless otherwise indicated. The financial statements of AT&T Inc. (AT&T) have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm. Management has made...

  • Page 83
    ...Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts...

  • Page 84
    ... Control," management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of BellSouth Corporation (BellSouth) or AT&T Mobility LLC (formerly Cingular Wireless LLC), which were acquired on December 29, 2006, and...

  • Page 85
    ...Bell Telephone Director 1980-1983 Background: Brewing, family entertainment, manufacturer of aluminum beverage containers Chair of the Board of Trustees American Conservatory Theater Director since April 1997 Pacific Telesis Director 1986-1997 Background: Education, administration 2006 AT&T Annual...

  • Page 86
    ...56 Senior Executive Vice PresidentAdvertising and Corporate Communications James S. Kahan, 59 Senior Executive Vice...Wireless John T. Stankey, 44 Group President-Operations Support Randall L. Stephenson, 46 Chief Operating Officer Rayford Wilkins Jr., 55 Group President 84 : : 2006 AT&T Annual Report

  • Page 87
    ...: AT&T Investor Relations Securities analysts and other members of the professional financial community may call the Investor Relations staff as listed on our Web site at www.att.com/investor.relations. Written Requests Please mail all account inquiries and other requests for assistance regarding...

  • Page 88
    AT&T Inc. 175 E. Houston St. P.O. Box 2933 San Antonio, TX 78299-2933 www.att.com